Is Silicon Valley Dead?

I believe that Silicon Valley may soon be going the way of the floppy disk.

For the last two weeks I have been traveling around Asia with a group of tech entrepreneurs, on a trip called “Geeks on a Plane” organized by Silicon Valley investor Dave McClure. I took the same trip last year.

Why take a trip like this? The answer gets at some very real and seismic shifts taking place in the startup world that will be big news over the next few years.

Startups Cost Less

Ten years ago a successful Internet startup might require one to five million dollars in outside funding. Data centers, engineers, and software licenses were hot commodities and could easily drain a startup’s resources.

Now it is possible to get a startup to the point of testing it in the market — with real customers — for $25,000 to $50,000. This effectively removes VC’s from the equation at these early rounds and turns things over to angel investors. As angel investing becomes increasingly professionalized, success rates increase and more people become involved with it.

“Silicon Valley is a State of Mind, Not Necessarily a Real Place”

Pay attention to this one! This is a quote by Dave McClure and it captures what is happening perfectly. Everywhere you go, there are techies and entrepreneurs who follow the tech business scene, and they are all ideological peers.

Silicon Valley is all about embracing the idea that the world can be changed for the better, and that one can (ultimately) realize rewards by changing it. If you believe this, you are a part of Silicon Valley. What about that statement is related to place?

In Shanghai, Beijing, Seoul, Singapore and Tokyo I have seen first hand the buzz and excitement that comes from people who believe that they can engage with the problems of our world imaginatively and productively. And they are not moving to Silicon Valley.

3D Printer at Singapore’s hackerspace.sg

Place as a Strategic Differentiator

Not being in Silicon Valley is very helpful if you are trying to tap into developing markets like those in China, Korea, and Japan. It is also helpful if you don’t want to have to pay Valley salaries and sucked into the echo chamber there.

As an example, a skilled developer in Silicon Valley might cost you upwards of $120,000 per year; the same person in India would cost $12,000 per year and in Singapore they would cost $48,000 per year.
If you are trying to build a product to serve the Asian market, wouldn’t you rather base your company in Singapore?

Being in “a” place is more important than being in “the” place

It is widely assumed that internet technologies like Skype and email crush distance and make global distributed business possible. True, but there are exceptions.

Real creativity, trust, and ideation has to happen face to face. This is where the magic occurs. If you don’t spend time with people you can’t create.

New-technology tools can help with execution, but only after the team dynamics are in place; they are great for keeping people connected and plugged in, but suck at creating an initial connection.

Love your place. Find the other like minded souls who love your place and start companies with those people. The creativity you unleash in your own backyard is the most important competitive differentiator you have. No one else has your unique set of talents and point of view. Leverage it.

Every City is Becoming Self Aware — All at Once

I do not know of a city anywhere in the world that is not presently undergoing a tech community renaissance right now. This is a VERY big deal.

Every city in the United States along with Europe, Asia, and South America is now using the same playbook — implementing coworking, hacker spaces, incubators, angel investment groups, bar camps, meetups and other proven strategies that will have the effect of cutting off the oxygen supply to Silicon Valley.

For the last few decades, Silicon Valley has traded on the fact that people are willing to move there to start companies. The MAJORITY of valley companies are founded by foreign born entrepreneurs. What if they stop coming? What if they find the intellectual and investment capital that allows them to self-actualize in their home turf, where they already have a competitive advantage?

The fact that we have made it so hard for new immigrants to come to the valley and create startups just makes things that much worse. That is why the Startup Visa concept is so important if America – not to mention the valley – wants to keep excelling in innovation and the economy of ideas.

“Soul-crushing Suburban Sprawl” – Paul Graham

The Valley Kinda Sucks

Everybody says that the big draw to San Francisco is the weather. True, it can be pretty nice at times. But it can also be pretty miserable.

The reality is that the weather makes no f*cking difference if you are slaving away 26 hours per day on your startup; and the fact is that humans only really perceive changes in weather anyway: you’ll notice a nice day if it has been preceded by 10 rainy ones, or vice versa. Studies have demonstrated this. Look it up.

Paul Graham said it best, “Silicon Valley is soul-crushing suburban sprawl.” And he also suggested that places that can implement a bikeable, time efficient startup environment without sprawl have a significant competitive advantage over the valley.

Nearly every major city is becoming that place for its community of entrepreneurs. All at once.

So Why Travel?

It’s simple: to go to where the startups will be coming from. Investors who wait around for startups to show up in the valley are going to miss out on serious innovations and investment opportunities.

This means leaving the Lamborghini parked on Sand Hill Road and cabbing it to a gritty hackerspace in the Arab section of Singapore to meet the innovators who are building the future. And this is something that most investors think they are too good and too important to go do.

Fortunately there are scrappy, forward-thinking folks like McClure who are willing to go out there and embrace the future and begin the creative destruction the next wave of innovation will bring to valley culture.

Our challenges are too great to demand that innovation happen one way, in one place, with one set of people. Innovation needs to be systematized and distributed, and this is the opening act.

The Future of Entrepreneurship

I had a great conversation with Dr. Meng Weng Wong today, founder of Joyful Frog Incubator in Singapore. We pondered questions:

In the future, will companies form teams and then try to get funding, or will entrepreneurs just gather, form ideas and try things?

How do bands form? And are incubated startups just boy bands?

Are we not always just betting on individual ability to execute?

Doesn’t team (and execution) always trump idea?

Is entrepreneurship a cycle? Shouldn’t exited entrepreneurs come hang out with first time entrepreneurs and try ideas together?

These are important questions in their own right, but the most important thing is that we are asking them. And so are people around the world. And it has nothing to do with Silicon Valley, the place.

Want in on the ground floor of this next wave of innovation? Understand the change that is coming and leverage it in your own backyard. Get involved.

Because I guarantee that in five years the Valley will be a very different place and that we will see thriving startup communities bearing real fruit in every major city.

Why go to the Valley? Good question.

A couple of acknowledgements:Shervin Pishevar pointed out that he and Dave McClure have been talking up the “Silicon Valley is a state of mind” concept for some time; he deserves proper attribution. Hats off, Shervin — the idea certainly resonates with me and I applaud both you and Dave for recognizing and acting on its power.

Also, Bob Albert — an entrepreneur I met in Singapore — came up with the “Is Silicon Valley Dead?” meme while we were chatting, and he deserves credit for crystallizing that idea. It’s been said before, but for different reasons; the forces driving this set of changes are distinctly different and I think we’ll be seeing this notion repeatedly over the next few years.

Dave McClure tweeted this article with the title “The Future of Silicon Valley Isn’t in Silicon Valley,” which is perhaps an even better title, even if it’s a touch less meme-friendly.

Thanks to everyone for engaging in this conversation!

42 comments ↓

If Silicon Valley is the hub, there remain a thousand city spokes that keep the wheel of global tech entrepreneurship turning. Knowledge transfer and flows of people and capital are the life blood of this industry worldwide. It's an opportunity, not a threat for the Valley.

New Zealand is a 13 hour plane ride from Silicon Valley. Down here, we've had to learn to be self-sufficient and get on with building cool companies without access to very much capital. It is good news to hear that U.S. investors are beginning to pay attention to pioneering startup opportunities outside of the traditional Valley ecosystem.

Tech Meetups sprouting up everywhere, meetups.com/startups is happening on June 8. You can definitely see that there might not be a vibrant startup ecosystem in every second-tier city, but there's clear interest and possibilities for the future.

I agree with Mitch, there is so much more here than Internet start ups. It's funny, whenever I see yet another post or article claiming that Silicon Valley is dead, part of me secretly wishes that it would happen–then real estate prices may decline.

Or maybe we can even go back to farming & ranching, especially since slow food is so in now 🙂

The key is the investor $$$, the tendency of VCs to invest within driving distance. Silicon Valley's legacy are these guys and Stanford. The bigger firms are branching out following the big PE firms from NYC. I've heard rumours that Vancouver could be getting a few new VC outposts.

Maybe this is the beginning of a shift in the VC business model as well. Distributed capital, smaller teams… Lean VC?

Ok, and just where are you from Dave Troy? Hmmm….did you not mis-title your post? Should it not be entitled “Is Baltimore dead?”. Just a thought. Silicon Valley is alive and well, thank you very much. And the end is not likely in sight anytime soon. Yes, because of cheap bandwidth, Skype and the flattening of the world, a la Thomas Friedman, other areas will emulate the Silicon Valley model, and do so successfully over time, thanks in part to the cultural exchange work by Dave McClure and the GOAP, but more so because they have to for their own survival. Silicon Valley has seen numerous booms and busts over the last 40 or so years. When the startups grow into gargantuan tech firms (fill in the blank: HP, Cisco, Oracle, Intel, Netscape, Sun, Google, Yahoo, Facebook, Twitter and the list goes on and on), yes, when those firms get too big for early employees, they typically stay around and form another company, right here in the Valley of the Dead, good ol' Silicon Valley. Why? How about weather, culture, San Francisco, wine country, Yosemite, Stanford, UC Berkeley, Sand Hill Road, Tahoe, Santa Cruz, Monterey, Big Sur…just to name a few. Yes, the Valley will need to continually evolve and regenerate new ideas in the face of rapid change and developing markets and similar ecosystem build outs all over the world. Every few years or so, I read a similar article, post or column and the prognostications generally turn out to be false.

I agree with you so far as Internet startups that require very low initial capital are concerned. However, for businesses that need a lot of capital investment to get going or to keep going, the concentration of VCs in Silicon Valley will keep startups moving to the Valley. The engines driving the Valley are the number of “tentpole” companies that spin off startups, and the availability of talent and capital. Those will come in other cities and countries in time.

1. Stanford will continue to attract the best talent in the world, especially foreign-born talent.2. Angel investors are not created equal, here in the Valley they have often done it themselves, and so have a trained eye for quality teams.3. The Valley's competitive advantage is not necessarily in any one field (e.g. Internet technology), rather it is in its ability to reinvent itself as necessary.

Point well made on understanding foreign markets, but that only gets you foreign markets. I don't see the next Google coming out of a small overseas market; that required savvy veteran investors recognizing a world-class team of Stanford students, one of them foreign-born.

1. Stanford will continue to attract the best talent in the world, especially foreign-born talent.2. Angel investors are not created equal, here in the Valley they have often done it themselves, and so have a trained eye for quality teams.3. The Valley's competitive advantage is not necessarily in any one field (e.g. Internet technology), rather it is in its ability to reinvent itself as necessary.

Point well made on understanding foreign markets, but that only gets you foreign markets. I don't see the next Google coming out of a small overseas market; that required savvy veteran investors recognizing a world-class team of Stanford students, one of them foreign-born.

Insanely lame post! I completely disagree with the other comments — your opinion is poorly articulated and not backed by any real data. The Silicon Valley continues to attract the best and brightest minds from around the world. It is where Apple designed the iPhone/iPad, it is where Google is building out next generation applications, where Facebook is headquartered… other companies with a major presence including Electronic Arts, Oracle, Adobe, AMD, Applied Materials, HP, Pixar, ILM and many, many others. See: http://en.wikipedia.org/wiki/Silicon_Valley#Not…

There are start-ups forming all over the place — many of which have become major players recently like Zynga and Playdom. Many VCs are based out of here because it is at the center of the action.

There is a spirit to the SIlicon Valley that cannot be easily duplicated anywhere in the world. Yes, great companies have and will continue to form all over the world, but rest assured, you are fooling yourself to make the case that the Silicon Valley is dead.

Cyrus – clearly I am not trying to say that the startups in the Valley do not presently exist or that there is not an active culture there. But I am making a statement about trends, and about the future. If the title is a bit of an over-reach, it's only to make a point about that trend.

In 1994, folks told me I was insane for starting an Internet hosting company using Linux instead of Sun servers. I was on the right side of that. People are telling Steve Jobs he's crazy for dropping Flash. He's on the right side of that.

Tech history repeatedly shows that when something becomes possible, it will happen. And all I am asking is where Silicon Valley is going to get the people to sustain its current level of innovation if they are able to be successful working elsewhere?

It is not to say that there won't be *any* innovation there; rather, the playing field is being leveled right now, relative to the rest of the world.

And how many companies really need VC-level rocket fuel? Increasingly fewer – which is part of the reason VC's are increasingly desperate to find places to put their money.

The deals of the future are smaller and they can happen anywhere.Cyrus – clearly I am not trying to say that the startups in the Valley do not presently exist or that there is not an active culture there. But I am making a statement about trends, and about the future. If the title is a bit of an over-reach, it's only to make a point about that trend.

In 1994, folks told me I was insane for starting an Internet hosting company using Linux instead of Sun servers. I was on the right side of that. People are telling Steve Jobs he's crazy for dropping Flash. He's on the right side of that.

Tech history repeatedly shows that when something becomes possible, it will happen. And all I am asking is where Silicon Valley is going to get the people to sustain its current level of innovation if they are able to be successful working elsewhere?

It is not to say that there won't be *any* innovation there; rather, the playing field is being leveled right now, relative to the rest of the world.

And how many companies really need VC-level rocket fuel? Increasingly fewer – which is part of the reason VC's are increasingly desperate to find places to put their money.

1) The Baltimore/Washington metro has the highest concentration of IT professionals in the world.

2) Our region, like every region, is evolving and developing its startup culture in real and meaningful ways.

You sound like you're stuck in 2002. I'm talking about trends and the future. You're talking about history.

I addressed weather. And from a culture and “attractions” standpoint, you sound like a brochure. There's no other culture or nature anywhere else in the world? You need to travel, my friend.

The reason previous prognostications on this subject have failed to come true is because the forces I cite have not been in play until now.

Seriously. Get your head out of your a** and look around the world in a critical way. Make a deductive argument on empirical observation of other places, not an inductive argument based on previous experience.

Finally, although your argument is focused on internet startups, the Valley remains the most diverse in terms of the sectors that it invests in. While healthcare, green tech, etc are very different beasts, there may be an argument that interesting innovations may occur at the intersection of these disciplines at times, and in such instances, the Valley may be uniquely advantaged.

Again, the trend you're speaking of, if it manifests itself, will likely be a slower migration. We'll see what the data says over time to see how it plays out.

The community is becoming more open, global, and connected, with great pockets everywhere, europe included, but the valley is far from dead! i liken it to hollywood:movies… movies are made everywhere, and some of the best movies are made outside hollywood, but nothing beats the infrastructure, efficiency, money and talent density of hollywood, and the valley for that matter.

We all know the only reason the DC area has the most IT professionals is the bloated Fed Government. Nice comeback. I agree that the amount of new VC money is spreading to other locales around the world and that Silicon Valley's percentage of pie is in decline but will still remain the most significant, probably forever. You post still bears no resemblance to the title. And btw, when you start to get personal, that the first sign of a losing argument…my friend.

1. You don't disagree with my assertion, but qualify it. Contractors and universities are actually as big a factor as the government. And I can tell you that the large population of IT professionals here is now and will become increasingly entrepreneurial. Without being on the ground here, you would not know that.

2. VC money is not especially relevant, and that was my original point.

3. The title is a forward-looking assertion, with some creative liberties taken.

4. No, the first sign of a losing argument is an inability to assemble facts and present them logically.

And I'm not especially arguing with you; I'm just making a deductive argument about empirical facts that I observe all around the world.

Do you dispute those facts or do you want to talk about history still?

A key matter need to be overcome for the globalization of the Silicon Valley state of mind: Exits. It's certainly great how far you can come today with <$50K, but who's gonna finance your follow-on, and even if you succeed, how are you gonna exit…Silicon Valley has all stages of the startup lifecycle built out, so what's more likely is a feeder system where earlier stages are globally “outsourced”. I would suggest startups master the art of Early Exits, per Basil Peters' articulation. Otherwise, the right strategy in the USA is fast-following on proven concepts abroad that choke when it comes time to scale.

Very insightful, Marcos. I agree with you. I think the financing structures will start to mature in other places so that these issues are mitigated over time, but it will take a bit of education and proliferation of solid best practices.

I do think that will occur, and I also think we'll see a bright-line differentiation between more modest/regional/focused startups, and the larger huge-scale stuff that the Valley has always excelled at, i.e. the next Google.

It may well be that the Valley becomes specialized in the few large, rocket-ready startups, while the long tail becomes evenly distributed elsewhere. This seems very likely to me.

Tell you what, since I see this as a complete waste of my time. I will deduce that you're freakin' whacked and since Silicon Valley is dead, I'm packin' my bags and moving to DC since there are so many IT jobs. Leads welcome.

I'm happy that the startup mentality and culture is growing everywhere on the planet and hopefully we will see many interesting companies appear in the future. It's interesting that nobody has brought up the Silicon Valley constructive culture of failure point that Randy Komisar raised as a distinct strength to SV vs. other places (see this video http://www.youtube.com/watch?v=0RP1sS8rMsQ). SV knows how to deal with failure and great things come out of it.

Do you think this culture can be exported? From my own experiences in Germany failure is often seen very negatively and results in a risk averse culture in regards to financing, startups, etc.

your response to #1 is an assertion without data to back it up. if it is true, should have happened already. what changed? just more overflow of ppl who can't get to stanford but are good enough that they should have?

dave, saying silicon valley is dead is just silly. not just creative liberty but purposefully being provocative.

you're real argument is that other places are rising up or progressing faster than the valley, and that the valley's cost structure will hurt it in the future. That may be true. but it has been true for a long time, and the valley isn't dead yet, and doesn't appear to lack for innovation yet.

1 – I I understand the argument correctly, then one of the primary forces undercutting SV (if, in fact, that is happening) is a set of technological advances created by Silicon Valley itself. Dunno if that makes it ironic, tragic, or just one of those “Circle of Life” kinda things, but it's interesting.

2 – Throughout this entire conversation I saw no mention of the State Government and its travails. Are people failing to factor this into their forecasts, or are my concerns overblown?

Something like 40+% of start-ups in the USA by $$ value are in Silicon Valley.nnYou are talking abour 1s and 2s everywere else.nnNew York as a current start-up boom due to publishing for mobile devices and Internet as old school publishers change or die. This is hardly world-changing stuff, just an old industry froced by silicon valley to get up to snuff.nnYou also seem to be talking about light weight Internet start-ups – content, specialized e-commerce, blogs/edited content, social apps, and mobile apps, …. alomst none of which have the ability to turn into game changes … they are basically good small businesses…nnkind of like the plumbers and electricians of the 21st century….the real game changes will still come up of the valley.

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